Australia's energy giants to face annual earnings slump on bleak oil prices

(Reuters) - Australia's leading energy companies Woodside Energy and Santos are likely to report a steep drop in their annual earnings due to lower oil prices, while analysts expect the focus to be on the outlook and cost management.

Oil and natural gas prices have fallen from 2023 highs as slowing global growth and a weaker-than-expected economic recovery in China weighed on demand.

Majority of the energy sector will struggle due to low prices, with liquefied natural gas (LNG) demand being impacted by weak global industrial production, Mathan Somasundaram, CEO of Deep Data Analytics said, adding that Woodside and Santos were classic examples.

Woodside is expected to report an underlying net profit after tax (NPAT) of $3.27 billion for 2023, according to UBS.

That is lower than the $5.23 billion booked last year when the energy firm's profit hit a record high after the incorporation of BHP Group's petroleum arm into Woodside's asset portfolio and higher LNG prices.

Last week, Woodside also flagged a non-cash post tax-asset impairment of around $1.2 billion from its Shenzi oil and gas field for its 2023 fiscal earnings.

Smaller rival Santos is expected to report an underlying net profit of $1.49 billion, according to UBS, lower than $2.46 billion in the year-ago period.

Santos' profit came in higher last year due to stronger prices and after its merger with Oil Search beefed up its LNG portfolio.

"With revenues pre-announced for oil and gas companies, costs remain the big unknown and could see downside risk to future earnings," Jarden analysts wrote.

"If the growth outlook presented looks murky or uncertain, shares in the company can be sold off accordingly," said Tim Waterer, chief market analyst, KCM Trade.

Santos and Woodside are expected to release their annual earnings updates on Feb. 21 and Feb. 27, respectively.

Earlier this month, both companies scrapped a proposed $52 billion merger. Analysts said shareholders will focus what the companies will do next.

"We expect investors will query management on whether the company will pursue other means to create shareholder value outside of delivering on the current growth projects," Jarden analysts wrote referring to Santos.

(Reporting by John Biju and Roshan Thomas in Bengaluru; Editing by Sherry Jacob-Phillips)

By John Biju and Roshan Thomas